The Consumer Price Index (CPI) has eased to a rate of 5% as measured by a year earlier. This is down from 6% last month and represents very good news for the overall economy.
This was the smallest gain we’ve had since May of 2021.
Core CPI which excludes volatile energy and food prices actually increased last month to 5.6%. In February it was measured at 5.5%.
Most economists consider the core inflation rate to be a better predictor of future inflation. It has stayed high in recent months primarily due to the higher costs of housing.
OPEC’s decision to limit oil output has increased energy prices in the past few trading days. We can only hope that energy supplies will not be limited further.
This puts the focus directly on the next Federal Reserve meeting. Will they raise rates again, or pause?
What I’m seeing tells me that the bet is even money either way.
If energy prices skyrocket again, they may be forced to raise rates to counter additional inflation. But given the banking mini-crisis, the question becomes how much more can the banking system handle without crumbling entirely?
One historical fact remains. The Fed has always been forced to raise interest rates to a point where they are higher than the inflation rate to get prices back under control.
Given the fact that both are currently sitting around 5%, we may be where we need to be. Only time will tell.
Let me leave you with this.
Whether we’re at the end of the interest rate hikes or within a point of the top, is almost irrelevant at this juncture. The question now becomes, when it’s finally over will we have a soft landing or go into a full-blown recession?
If I had a crystal ball, I wouldn’t be sitting here doing tax returns. But my point is that we need to be ready for either eventuality.
And being ready comes down to preparation. Properly positioning your company for any potentiality will only add to your success.
Let’s remember that higher inflation began in January of 2021. Since then we’ve had an average adjusted inflation rate of 15.39%.
That’s the average. Your individual rates of inflation will depend entirely on the pricing increases for the inputs of your business. It could certainly be much higher.
But using the average, if your prices over the period haven’t increased by 15.39%, then you’re losing to inflation. You just don’t have the same buying power you had a little over two short years ago.
We all need to balance that against the fact that we may be going into another recession. And if you’ve ever taken your company through one, you’ll know how difficult it can be to sell product when no one has any money.
Such is the life of an Entrepreneur. Like it or not, this is what we signed on for.
Gird your loins and be careful. Something tells me that the next year or two will be difficult.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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